Trade War To Become Tech War as China Threatens to Pull Money from Silicon Valley

In the span of a day, China has gone from threatening to crash US markets if President Trump doesn't agree to a trade deal to helping the US rebut reports that trade talks weren't going as smoothly as President Trump and the Wall Street Journal had let on. During a press conference on Thursday, Ministry of Commerce Spokesman Gao Feng denied reports that a meeting involving high-level trade officials in Washington had been cancelled (the FT had cited US frustrations with China's reluctance to cave on demands relating to curbing IP theft and certain structural reforms) - backing up Larry Kudlow, who sparked a brief rally just before the close on Wednesday when he appeared on CNBC to deny these reports.

Kudlow said yesterday that the most important meeting, between a Chinese delegation led by Vice Premier Liu He, the country's top economic official, was still slated to take place in Washington next week.

But in the latest sign that the simmering tensions over the US's dispute with Huawei continue to spill over into trade talks, RT reported on Thursday that Beijing might cut off all Chinese funding to Silicon Valley after the US slapped an export ban on a Huawei subsidiary based in Silicon Valley.

The comments were made by Former PBOC Deputy Governor Zhu Min, who sat for an interview with CNBC.

His message was clear: The US's push to drive Huawei out of Western markets would have a negative impact on the trade negotiations. In addition to his former role at the PBOC, Zhu is also a former official at the IMF.

“I can tell you, after the Huawei events, all the Chinese money into Silicon Valley stops. And no US money will want to invest into China either,” Zhu Min told CNBC on the sidelines of the World Economic Forum (WEF) on Tuesday. He did not elaborate on what should happen to bring about such an outcome.

Min's comments followed remarks from Huawei Chairman Liang Hua, who told world leaders gathered in Davos that his company could shift away from Western countries if it continues to face restrictions.

Asked if it was possible for China to abruptly pull money from Silicon Valley, John Zhao, founder and chief executive of Hony Capital, said "by numbers, that seems to be the case."

"But it really suggests something that is much deeper than the number has started to show. First of all, it shows the interdependency that the world has built with each other...But it also suggests that while there are some short-term pains to be resolved, we need to have a long-term view," Zhao said, while speaking to CNBC’s Nancy Hungerford in Davos on Wednesday.

And just like that, Silicon Valley has once again found itself at the center of the trade war.